Price war between MNCs, growth of Ghari threatens small detergent with washout

MUMBAI: A price war between multinationals and rapid growth of the Ghari brand across the country have washed hundreds of regional detergent brands out of the market. Almost.

More than 500 local detergent brands such as XXX, T-Series, Vidsha, Tran Keri and Power Detergents have lost 10% of the 12,000-crore Indian detergent market, according to Nielsen data. Their combined market share slipped to just 2.9% in 2010 from 13% in the year earlier.

This is mainly because the small players could not hold their price lines in the wake of inflating input costs, while national players such as Hindustan Unilever and Procter & Gamble either cut or held on to prices, bridging the price differences with local brands.

The prices of crude oil, the key ingredient for making detergent, have almost tripled to $112 per barrel from 2009 levels of around $40 per barrel. "Unable to make low-cost detergents is one of the main issues faced by these smaller firms. And branded players are getting very aggressive on all fronts-marketing, new launches as well as customer acquisition through increased distribution," says Indiabulls Securities Vice-President Anand Mour.

Multinationals hit the small brands where it hurts the most-on the pricing front. "Consumers tend to move to branded players if the price differential narrows down, especially in segments such as laundry," says Mour.

In 2009, P&G launched a low-priced variant of its washing powder brand Tide at 50 per kg to take on Hindustan Unilever's Rin, which was priced at 70 per kg. The market leader reacted by slashing the price of Rin to 50 per kg. In the mass segment too, national brands such as Hindustan Unilever's Wheel, Ghari and Nirma resisted passing on increase in raw material costs to consumers. This forced several low-priced warriors out of business. Another factor was the rapid geographical expansion of popular homegrown brand Ghari.

The Kanpur-based brand, owned by Rohit Surfactants, almost doubled its market share to become the second-largest player behind Hindustan Unilever with a 13.5% share in December 2010. "We have almost doubled the states where we sell and have kept our prices unchanged and affordable despite raw material pricing inching up consistently, " Rahul Gyanchandani, Director, Ghari Detergents, said.

The company that has been operating primarily in Uttar Pradesh for two decades started distribution in eight new states last year. It now covers 20 states across the country. "We are also setting up a new plant in Karnataka to cater to newer markets," Gyanchandani added.

This may help Ghari challenge Hindustan Unilever's Wheel as the largest detergent brand in the country. But the multinational giant is in no mood to cede any ground.

"We have taken several actions to strengthen our leadership position," a company spokesman says. "We have invested on our brands, be it in terms of innovation, product quality or marketing spends."

Last year, Hindustan Unilever added more than 600,000 outlets despite having the largest network of a million retail outlets already.

It increased its sales across the portfolio. Wheel reported the highest growth. Its multinational rival P&G too gained the most from Tide's low-priced variant launched a year and a half ago.

Meanwhile, the fall in regional brands fortune is dramatic because many of them were seen as a threat to national brands just two years ago. Market experts expect them to return to the market when the crude oil prices bottom out. That will help them sell cheaper detergents.

The trend of strong and established players gaining momentum is similar to 2004 when Nirma, the second largest detergent brand then, found itself caught in the crossfire between HUL and P&G, when both the companies slashed prices by 30%.

This time, however, on the firing line are local players, each trying to replicate the Nirma model. Experts feel Ghari's market share will now even out while HUL and P&G's could show a marginal increase.